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CRUDE OIL MARKET FUNDAMENTALS: Crude oil’s rebound from a 1-week
low led to upside follow-through this week, but the market has already given
back early strength and may require additional bullish supply news to retest its
late-September high. Nonetheless, energy prices had a significant change in
fortune on Friday as they were able to rebound from heavy early losses to finish the day with sizable gains. Comments from a Chinese central bank official were thought to have weakened that nation’s demand outlook and became a source of across-the-board pressure. However, a “risk on” mood fueled by increased expectations of US tax reform measures helped crude oil and the products to find their footing later in the day. News that US crude oil exports rose above the 2.5 million barrel per day (bpd) level also provided support going into the weekend. The CEO of Schlumberger stated that investment demand in North America could moderate over the next few quarters, however, which could result in US crude oil production closing in on a near-term ceiling. This was backed up by latest Baker Hughes oil rig count, which showed the number of rigs operating fell by 7, down to 736. This was the third decline in a row and the seventh decline of the past ten weeks. Iraqi forces have taken control of oil fields in Kurdistan, which could go some ways towards relieving supply anxiety from that region. The Saudi Oil Minister stated that the global oil market is improving, as compliance with output cuts from the Oil Producers Agreement is extremely high. The Commitments of Traders Futures and Options report as of October 17th for crude oil showed non-commercial traders were net long 478,294 contracts, an increase of 3,493 on the week. Non-commercial and nonreportable traders combined held a net long of 475,931 contracts, an increase of 2,024.

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